June 07, 2013

Wall Street Wakes-Up to the Folly of Samsung's Volume Strategy

Has Wall Street finally seen the folly of their ways when it comes to backing all-things Samsung who blindly favors market share over profit? Well it sure looks like it. Today, a new report states that Samsung has lost $12 billion in market value, hit by brokerage downgrades that have underscored concerns about slowing sales of its flagship Galaxy S4 smartphone.

The share slide of more than 6 percent comes after it recently introduced two stripped-down versions of the S4, fanning worries that profit margins for its mobile business will suffer. It also follows a report that Apple will begin a new aggressive trade-in program for iPhones.

Reuters report states that the new stripped-down S4 models will help it widen its lead in the global smartphone market and fend off Chinese competitors, but some fear that the South Korean tech giant is trading in profits for volume.

Analysts say sales momentum for the high-end version of the S4, which became its fastest selling smartphone since its launch in late April, has slowed.

Brokerage downgrades came from Woori Securities and JP Morgan. Fitch Ratings earlier this week voiced their concerns over a possible mid-range iPhone and Samsung's inability to truly innovate. JP Morgan also stated that the Galaxy S4 will only sell 60 million units this year, a far cry from Samsung's estimated 100 million.

When CEO Tim Cook spoke at the D11 conference last week he loudly hinted (with specific scenarios) that Apple is carefully considering a mid-range phone specifically engineered to serve a clearly different market segment. Apple has no interest in rushing out a cheap stripped down iPhone with little profit that would hurt their higher-end iPhone. That's the difference between leadership with balanced thinking versus Samsung who thinks that volume is better than profit at every turn.

Here's to hoping that more on Wall Street will wake-up to the fact what while market share is very important, it's not if it's associated with little to no profit.

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